Florida Estate Planning Lawyer Blog

The trustee of a third-party created and funded SNT is given complete discretion in making distributions to or for the benefit of the special needs child. Thus, who should serve as the trustee of a third-party created and funded SNT is important.

The selection of the trustee involves many considerations, including the trustee’s ability to understand and respond to the needs of the special needs child; the trustee’s knowledge of government benefit programs and the effect that trust distributions will have on the special needs child’s government benefits; the trustee’s health, integrity, reliability and financial acumen; the trustee’s potential for a conflict of interest if the trustee is a current or remainder beneficiary of the trust; the potential for adverse income and transfer tax consequences if a family member serves as a trustee and is also a current or remainder beneficiary of the trust, etc.

Caution: Due to SSI and Medicaid rules and for various tax reasons, neither the special needs child nor his or her spouse should serve as trustee of either a third-party or first- party SNT.

There are at least seven options for family philanthropy, each of which has its own

strengths and weaknesses from tax, regulatory, and personal perspectives. Some are extremely complex while others are simple.

1. Private Foundation According to the IRS in 2006 65% of the 80,000 private foundations had assets of less than 1 million dollars. Biggest reason for forming a foundation is control over the assets and expenditure.

Advantages: 1) Charitable deduction for the gift. 2)Distributions to individuals and foreign charities. 3) Control of charitable distributions 4) Control of administrative and investment management decisions. 5) Memorializing the family. 6) Endowing the family’s charitable priorities while maintaining long-term flexibility. 7) Platform for family philanthropy. 8) Visibility and influence for family members. 9) Protection of assets from personal bankruptcy

Given that many GRATS are now underwater and will not likely recover.

Grantor can purchase assets, acknowledge that the GRAT will fail and create a new GRAT with the assets.

If the GRAT contains an annuity payment and the grantor believes that that the underlining asset will still preform over the term of the GRAT, the annuity payments can be taken and new GRATs can be formed with these payments.

Seven states have enacted statutes that permit a trustee with discretion to distribute principal of a trust to exercise the discretion by transferring principal to a new trust, which may have terms different than the original trust. They are Alaska, Delaware, Florida, New Hampshire, New York, South Dakota and Tennessee.

Main issues for using Decanting statutes:

1. The discretion the trustee of the first trust must have to use the

statute;